WHEN: Today, Thursday, December 21, 2023
WHERE: CNBC’s “Squawk on the Street
Following is the unofficial transcript of a CNBC exclusive interview with Morgan Stanley Executive Chairman & Outgoing CEO James Gorman on CNBC’s “Squawk on the Street” (M-F, 9AM-11AM ET) today, Thursday, December 21. Following is a link to video on CNBC.com:
All references must be sourced to CNBC.
DAVID FABER: We are live from Morgan Stanley’s headquarters for what is a special interview. James Gorman will be retiring as Morgan Stanley’s CEO at the end of the year. Of course, that’s not too many days from now. But he will be staying on as the company’s executive chairman. He joins me now in a CNBC exclusive. We’ve done a lot of these through the years. This may be our last, and I don’t want you to tear up yet. But —
JAMES GORMAN: Unfortunately, I’m not going to be tearing up, but it’s great to have you back to Morgan Stanley, and I’m looking forward to it.
FABER: Yes. It’s good to be here. You know, so many different ways we could start this, but I am curious. You have to be sort of thinking about the last almost 14 years that you’ve been running the bank, not to mention, obviously, you were here for a number of years prior to that. So, when you think about the totality of your time here, in particular, leading the organization, what do you think and how do you think about it?
GORMAN: I think to lead anything is a privilege. And to be given an opportunity like this during, you know, in working life, if you happen to be in business, happen to be in financial services, it’s an incredible honor. So, I guess the, you know, the reflective side of me would say how lucky I’ve been. You try and, you know, one of our core values on the wall when you came in this morning is, do the right thing, you try and do the right thing, you make some mistakes along the way, you get judged in these jobs like you do in your job, David, and, you know, that’s, you rise to that. You don’t let it get to you. But the main thing I take away is what a privilege to have led such an incredible institution. Just, I’m so proud of the quality, the people, the values, the way we got through COVID. I mean, there’s so many moments through it and we’ll talk about some of the business side —
FABER: Sure.
GORMAN: But it’s more the human side and role of leadership. Now, one of the, a lot of people want to be leaders, but they don’t want the tough bit that goes with it, which is you get to make decisions and your decisions prove to be right or wrong over time. So, the accountability, and that’s something I’ve always sort of risen to. I like being the guy making the call. And if you like that and you’re in position to make calls that can really move institutions, in our case, obviously, global bank, you know, incredible privilege of a lifetime.
FABER: Yes. Well, you’ve made plenty of those decisions. And obviously, one of the key ones was repositioning sort of the business of Morgan Stanley over these last few years, particularly when it comes to asset management. I mean, is that what people are going to think about when they think about the Gorman era? What do you think they should think when they look back on these almost 14 years that you’ve been leading Morgan Stanley?
GORMAN: You know, we came out of the crisis as the last institution that was about to fail. We did, you know, it was like planes, I described it like planes landing at Newark Airport. And if you look out over the Hudson River from Manhattan, and you can see them on a clear day like today at, you know, 2,000 feet, 5,000, 15,000, 30,000, then all the way back, you know, up the river, and, you know, Bear Stearns landed and sort of crashed landed and got scooped up by J.P. Morgan. Lehman landed and just crashed and they sweeped the stuff off the runway. Merrill landed and got scooped up by Bank of America because it was limping down the runway. You know, GE —
FABER: AIG.
GORMAN: AIG, and so it went. And we were like coming and we were at 3,000 feet. And there was still debris on the runway, we were leaking oil. And, you know, that was the moment. So, the ship that we, or the plane in that analogy that we took over was a really damaged vehicle, but we managed to land. And with the help of TARP and with the help of obviously our large investor, MUFG, we bought ourselves out of that immediate crisis zone. But just when we come out of it, we went into another crisis, which was Moody’s were going to downgrade us three notches. And over the next two years, we fought this incredibly tough battle to convince them that they were looking at us from a historical perspective, not from a current or forward-looking perspective. So, it was, as an institution, as I look back on it, it was more just, how do you go from survival, fragility, healing, you know, balanced, and then strong? And each of those have almost been different jobs along the journey. And right now, we’re strong. I mean, wherever the stock is trading, and I think it was up this morning, which is kind of nice, but there’s, unambiguously we’re strong. So, but there were several different jobs, if you will, along the way that required drawing on different skills and different team members.
FABER: Yes. Well, that crisis, of course, did create opportunity as well. One of the key ones being the opportunity to buy Salomon Smith Barney.
GORMAN: Yes.
FABER: Transform this company, right? I mean, you obviously chose, at that point, to take advantage of it. When you think back, was that sort of the transforming deal to a certain extent of your tenure?
GORMAN: Well, if, you know, firstly, just the context, and we talked a little bit ago about poker. I’ve played poker my whole life, and I love it. And you know, you have to avoid catastrophic risk, you can’t go all in when you really don’t have the cards. It’s fine to bluff, but it’s very dangerous to bluff. On the other hand, when you’ve got the cards, you get very aggressive. And I felt we had, even though we were weak and fragile as an institution, the fact we could work a deal with Citigroup to get that Smith Barney business was an extraordinary moment. These things happen. This is a, you know, once in 20-year, something like this comes along and you cannot hesitate. It doesn’t matter what the environment is like, it doesn’t matter what the naysayers say, it doesn’t matter about the whole history about whether Dean Witter worked or didn’t work, there was a moment and you walk through the door. So, to me, it was all about you be very aggressive when you’ve got advantages, and we had an advantage and had to move. And yes, that transformed the institution.
FABER: It did and it continues to. You know, culturally, I remember, there was a lot of questions at the time and there was a lot of tension. When you think about how you melded the cultures or what ultimately proved successful in terms of execution, how do you do that and how, what were the keys sort of along the way?
GORMAN: Well, you’ve got, you know, you’ve got to start with —
FABER: Because they were different. Morgan Stanley, I mean —
GORMAN: Oh, completely different.
FABER: You know, first of all, Dean Witter was a whole other thing.
GORMAN: Sure.
FABER: But very different organizations.
GORMAN: Oh, institutional and retail.
FABER: Yes.
GORMAN: The combination of those. Merrill Lynch had done it in reverse. They’d had a retail business and then built through Smith New Court and A.G. Baker, I think it was and various other, they built the institutional side. You know, I started with a very simple premise, David, which is the pure investment bank under the new capital rules, the governed trading businesses and the costs of running global trading businesses was not a sustainable business model on its own. That was my view for us. I’m not judging others, but for us. And by the way, we kind of proved that in the financial crisis. And the market rewarded those businesses with multiples of, in good years, nine, 10 times, in bad years of six, seven times. That’s not so good. So, the logic, if you’re in the business of helping move capital between issuers and investors, between people who have it and people who don’t, between sovereign wealth funds and so on, why wouldn’t you do that for affluent individuals? It’s exactly the same process. You read the same research. You transact it through the same systems. Why wouldn’t you do it for the same? So logically, apart from the sort of the emotional bias of we’re institutional, we’re not retailer, we’re retail, we’re not institution, put that aside and get back to the fundamentals of what the business actually does. It was obvious to me. So, I just said to the team, listen, my promise to you is we will make this a wealth management business you’re proud of, that is fit for purpose for Morgan Stanley. And one of the first things I did when I took over the wealth management business on, back in ’06 was we let go 2,000 financial advisers.
FABER: Right.
GORMAN: That had never been done before. You don’t fire because they’re, it’s, the marginal revenues. Why would you get rid of that? They’re on commission. Well, the answer was when we removed them and gave their accounts to better financial advisers, the clients were better served. It lifted the standard to the Morgan Stanley standard. And I said to the institutional team, listen, we can build stability for the institution, get a better multiple on the stock, but I want to make you proud of your partners on the wealth management side and vice versa. And I think that over several years bled through because the performance backed it up.
FABER: Yes. You know, you mentioned Smith Barney and obviously, that opportunity, which you took advantage of, which doesn’t come along that often. And then there was E-Trade and Eaton Vance. Smaller, not insignificant deals as well that you did. I just wonder, as you look forward, is there still another one out there that Ted Pick is going to need to make a decision on perhaps that sort of been there for some time or is Morgan Stanley, in your opinion, kind of complete?
GORMAN: Well, you know, I’ll just tell you a fun little fact. We spent much more on E-Trade than we did on Smith Barney.
FABER: Right.
GORMAN: And we spent nearly as much on Eaton Vance as we did on Smith Barney. I mean, it’s shocking, but that was the reality. No, there are always opportunities. I think Ted has a whole plate full of things to do. I mean, one of the things I, you know, if I stayed another, I don’t know, five years —
FABER: Did you think about staying another five years?
GORMAN: No, no. And I’ll come back to how I think about succession in a minute. But the, I think that we are more likely to do more non-U.S. We’ve been very long the U.S. All the deals we’ve done have been U.S.-based. Now, that served us incredibly well. And by the way, if you want to be long one market in the world, I’m all, I’m USA, you know, team number one. But you have to be aware that the world changes. There are opportunities that are opening up. What’s going on in India at the moment is fascinating. The sort of reincarnation in Japan for the first time in 40 years is fascinating. So, you’ve got to be mindful of global opportunities. So, I think we’ll do more deals in the next, we’ll certainly do deals as we continue to consolidate wealth and asset management around the world. But there will be more of them I suspect done, I would predict, internationally than U.S.
FABER: When you think about challenges that your successor is going to face, anything come to mind in particular?
GORMAN: You know, it’s not idiosyncratic as in we don’t have, I mean, there are some things I’m trying to clean up before I formally hand over.
FABER: You don’t have a lot of days left, you know that, right?
GORMAN: Yes. Well, I’m working hard. I tell you, I was working until, I don’t know, 10:00 or something last night. And I want to run through the finish line here. You know, it’s like when Kobe Bryant said when they were two up in the, you know, in the playoffs and they said, you must be feeling pretty good, and he said, job’s not done. Job’s not done. Job’s done when you’re finished.
FABER: Right.
GORMAN: And you know, so I’m, no, I think the, what Ted has is an incredible institution with a great culture, but you can’t take it for granted. Wall Street is littered with great firms that didn’t do well over time. He’s got a phenomenal team. He’s a tremendous leader. Wicked smart. He has a markets background, which honestly, I didn’t have. I came from a very different kind of background. But he has the intrinsic qualities of what it’s going to take to lead this institution. So, idiosyncratic problems he’s got to deal with here. No, I think, I mean, there’s usual run of the mill stuff, but no, not that. It’s more in this world over the next decade, how do we now take the strengths of a strong institution and capitalize on that?
FABER: You know, so many things have obviously changed during your tenure, but in recent years, and I’ve talked about this a good amount, the growth of these of the alternative asset managers, what used to be the private equity guys and are now just asset gatherers and all sorts of different strategies. I’m just curious, do you see them as a competitor? I know they’re also obviously important clients, but their growth has been so dramatic. You know, Blackstone has a trillion dollars now in assets. What do they represent in terms of the changes in the financial services industry and challenges?
GORMAN: Well, one is the democratization of alternative investments, which we’ve led as the leading distributor in the world. You know, we manage over $4 trillion. And many years ago, I remember, I won’t mention the name, meeting with the head of one of the firms and several of their partners here in our office, in our dining room, and explaining the opportunity to provide their product to the affluent investor, who, for whom a part of their portfolio, should have credit, infrastructure, P.E. MERS, real estate, you name it.
FABER: Yes.
GORMAN: And I think what, you know, I wrote, one of the only papers I’ve written in my life when I was a consultant back in the ’90s on I felt we were moving to a world where distributors, places like the Morgan Stanley Wealth Management business would become very large and consolidate. That’s exactly what’s happened. You know, we own A. G. Edwards, I’m sorry, Wells Fargo owns A. G. Edwards, Prudential, Wheat First, First Union. We own Kidder, Hutton, Smith, Barney, Shearson, you know, Dean Witter Reynolds and Company, et cetera. Huge consolidation. On the asset management side, you’re seeing huge consolidation. You know, the recent Franklin leg transaction as an example, what Marty Flanagan did in Invesco rolling up as an example. And in the old space, the bigger getting bigger, the pure, there will always be pure players in real estate and PE in particular, but then there’ll be mass players across multiple platforms, which Blackstone and others have successfully done. So, I’m not surprised at all.
FABER: How do you, and you continue to see that trend?
GORMAN: There will unquestionably be consolidation in the asset management space for the next decade. It is one of the last non-consolidated parts of the whole financial service spectrum. And it is inevitable because scale matters.
FABER: Right.
GORMAN: And now, there will always be boutiques like there are boutique investment banks who are very successful, right? There’ll always be boutiques, but the middle market, middle size is not going to sustain, you either be very large and get scale or be very boutique and get specialized. It’s inevitable.
FABER: Let’s talk a bit about you. You know, you mentioned poker. What are you going to do that you haven’t been able to do once you walk out that door and you’re no longer CEO a few days from now?
GORMAN: You know, I was a kid in Australia where, you know, early high school, we had a group of guys and we played, Texas Hold ‘Em back when I was in Binion’s Casino in Vegas and it was probably 200 players played in the World Series. There’s now, I don’t know, 10,000, 15, 000 players. We played all night and somebody had to buy the pizza and the beer. And I guess we must have been 18. Couldn’t have been younger.
FABER: Right. That was before you came to the United States and Columbia.
GORMAN: You know, I, so, yes, I’ll go and play a World Series of Poker when I’m out of these jobs. I’d never do it, never play in a casino, you know, cash games, obviously, running a bank. But no, fun stuff like that. I’m, you know, I’m getting more involved at Columbia University where I chair the business school and I’d like to teach a little bit. And I just joined the board of Disney, which you obviously know very well.
FABER: I do.
GORMAN: Which will bring me a little bit to the West Coast and change up my life a bit. And for the next year, I’ll spend just helping Ted and helping Morgan Stanley clients.
FABER: Yes.
GORMAN: So, I mean, I want to be a client guy for you. It’s going to be fun. I haven’t done this. I used to be a client guy, you know, people don’t know that, but that was my thing. And I’m looking forward to getting back to that. And then post that, I don’t know. It’s, and it’s nice to not know for a while what you’re going to do for once in your life.
FABER: Why did you decide to remain executive chairman? I mean, you could have just cut all ties.
GORMAN: Well, I think it depends how you play the role, right? It’s a title. And some people, you know, play the role where they split formally responsibilities. I’ll deal with regulators, investors and strategy and you deal with operations. My answer to that is no, that’s called being COO, not CEO, and CEO, not chairman. So, what I want to do is just ensure for a period of time, and it won’t be longer than 12 months. I’ve been absolutely rock solid on that and it might be a little shorter, but it doesn’t really matter. It’ll be most, if not all the year, just be here to ensure that I can give whatever support I can give to Ted as he deals with a completely new environment. These are very complex jobs now. We’re heavily regulated. We operate in all parts of the world. We’re dealing with a change in the capital regime now. So, there’s so much going on. So, I want to help him with that. But then I’m out of there. So, it’s to be a resource, not to be a person running.
FABER: Right.
GORMAN: I have my last operating committee meeting.
FABER: You’re changing offices? Do you keep your same office?
GORMAN: Yes. We’re going to change offices. We’re actually moving floors in about eight weeks.
FABER: You are?
GORMAN: So, we’re going to change. Yes, absolutely.
FABER: Yes, of course, right.
GORMAN: No. I’m all about a complete handoff. I had my last operating committee meeting this morning. I had my last risk committee meeting, my last management committee. And I told them, I will never appear in one of these meetings again, ever. It’s not my job anymore.
FABER: You mentioned Disney. You know and I’ve, obviously have followed that company for years. They haven’t done a great job at succession at that company. I don’t know if you knew that. It hasn’t gone particularly well. You are just coming off a succession process. What, to the extent, is going to inform you trying to help succession at Disney, which is going to become an important component of your board work there, that you’ve learned from this process?
GORMAN: Well, they’re forming a succession committee, which I’ll be joining. So, I’ll be able to, I mean, you know, this has been, the sorts of things I’ve done in this job is strategic transformation. Obviously dealt with shareholders at many levels, including activists. Succession talent building. So, some of the challenges that I have, I hope, you know, I can lend some of my experience on it. I don’t want to prejudge, you know, the succession process. That wouldn’t be fair to the team. I haven’t, I don’t start as a director until February.
FABER: Right.
GORMAN: But —
FABER: Yes. Right in the middle of a potential proxy fight, by the way.
GORMAN: That’s all right. You know, we have had a lot of battles in my life. That doesn’t bother me one little bit. I think the, you know, the challenge is to set up the conditions where the board has choices with talented candidates who are properly vetted for all the stresses these jobs have. I’m, I, you know, I don’t, I’m not on the board, so I have no wisdom or insight into it, but I have an enormous amount of experience having run succession here with our board. And I think we landed the plane really well with three great candidates, and then one of whom became CEO and two stayed as co-presidents.
FABER: Yes. That’s the surprising part, I think, for some, that the two stayed. I mean —
GORMAN: You know, we set it up that way. They’re great people. This is something I worked on for five years with Dennis Nally, the chair of our Comp and Succession Committee, and Tom Glocer, the lead director on the board. And, you know, in my first board meeting in January of 2010 I told the then-lead director Bob Kidder. We talked about succession right then. So, this is something that I’ve regarded as a key part of the job from the get-go.
FABER: Yes. And you made that decision last spring. I mean, you just said, I’m done, or it’s, you know, roughly 14 years. Why? Why was it time?
GORMAN: Firstly, the, a necessary condition of succession is you have to want to leave the job. You don’t decide to go because you’re 65, I happen to be, or you’ve been CEO more than 10 years, I happen to be, or the stock’s doing pretty well, which happily it is, or whatever, or I want to play more golf, I do, but not like five days a week. You have to do it because you actually don’t want to do the job anymore and you want to do other things in your life. If you can make that decision, then I had no problem being public about it. Now, some people criticize that and said, you’re going to set up a horse race, and like the old GE thing that happened with Jack Welch, I said, that’s ridiculous. You can’t analogize from one situation and say that will happen here. I was comfortable in the quality of the individuals, but 14 years running a global bank, for me, I’m not judging others, but for me —
FABER: Others being Jamie Dimon?
GORMAN: No. I’ve got, listen, Jamie is a phenomenal bank executive. I think he’s the best bank executive in the world, honestly. And I’ve seen them all. And, you know, but I care about Morgan Stanley and my role at Morgan Stanley. And it was my decision that I’d had enough and it’s healthy for an organization to innovate and move on.
FABER: Real quick. Let’s go through a couple here as we wrap up. What are you going to miss the most? You can’t say the people. So, something other than the people, which I’m sure you will miss the most. What will you miss most about the job?
GORMAN: Oh, making big calls. I loved it. I loved walking in and saying to John Pruzan, the day Ameritrade and Schwab merged, I said, you know what we’re going to do today? He said, what? I said, we’re buying E-Trade. He said, what do you mean? You know, pricing commission’s gone to zero. I said, no, you’re missing the point. This is the ultimate scale moment. And the two players who should have bought E-Trade didn’t.
FABER: What are you going to miss the least?
GORMAN: The relentlessness of it. I described it once as like standing on watching the ocean from the beach. I remember asking my dad why the waves never stop. And this job, the waves never stop. It can be 3:00 in the morning, something is going on somewhere in the world. I always have an e-mail box. I always have people bringing me bad news. And I’m OK with that. That’s part of the job, but it’d be nice every now and for it to just stop for a while. So, this is a particularly intense, I just flew back last night from Europe. It’s a very intense job. And you know, there’s a lot of ways to lead your life. You don’t have to always lead them in a state of incredible intensity.
FABER: Well, James, we wish you the best of luck not being in a state of incredible intensity in the future and appreciate you taking the time. Thank you.
GORMAN: Thanks for coming by.
FABER: You’re very welcome. We’re going to keep talking, of course, over time. Although, I don’t know if we’ll ever do another interview like this. James Gorman, chairman and CEO of Morgan Stanley.
